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Tue July 23, 2013
State Audits Identify 4 Cases of Pension Spiking
Washington retirement officials said Tuesday they have identified four people that received improper raises shortly before retirement, but several other workers that got late pay bumps may be allowed to keep their larger pensions.
Dave Nelsen, the legal and legislative services manager at the Washington state Department of Retirement Systems, said state audits confirmed cases in which pay increases were used to incentivize retirements in an old system for firefighters and law enforcement. Even though state rules prohibit retirement bonuses from being considered in pension calculations, Nelsen said some of the raises appear to be OK because the agreements did not explicitly require retirement.
"It's hard to prove that it was, in fact, a retirement incentive to the point where we are going to take it away from somebody," Nelsen said. "In these cases, while there was clearly some hope that some people were going to retire, there was no requirement that they actually do retire."
The audits were conducted following an Associated Press investigation that found some firefighters and law enforcement in an old pension system had received large raises before retirement. The LEOFF-1 retirement plan is the only system in the state that calculates pension values on the worker's final salary, instead of the average salary over a period of time.
The AP identified late pay raises that boosted the pensions of more than a dozen workers from different parts of the state who retired into the system over the past five years, adding millions of dollars in future liabilities to the pension fund. Some of those cases involved adjustments to contracts that provided workers with a temporary pay increase, allowing some veteran personnel to retire with larger salaries.
In the four cases that the state has deemed improper, retirement officials plan to contact the former workers and their former employers in the coming days. He declined to immediately discuss which workers received the excess retirement benefits but said the state will seek repayment.
Nelsen laid out a summary of the findings Tuesday in front of the state's Select Committee on Pension Policy. Democratic Sen. Steve Conway, who is on the committee, expressed concern about the idea that there was an allowable way for some workers to get a temporary spike in pay in order to boost their pensions. He said the key principle in the state's pension funding is that workers contribute during their working careers to pay for their future retirement benefits.
"It seems to undercut that," Conway said.
State officials have already requested more than $550,000 from the City of DuPont to cover excess pension payments that were provided to the local fire chief who was highlighted in the AP story. The Department of Retirement Systems determined in an audit that the city improperly classified Fire Chief Greg Hull as a contractor when he was hired after retiring from a position at another fire department.
Hull's pension payments would have stopped if he had been properly classified as a regular employee, so the state is now seeking to have the city repay that extra money.